Japan's central bank today raised its forecasts for the nation's growth this fiscal year and for consumer prices, while leaving its key rate near zero in an ongoing battle with deflation.
The Bank of Japan's decision to hold rates comes as it weighs the impact of a monetary easing programme that includes a five trillion yen ($61 billion) asset purchase scheme to lower borrowing costs and tackle deflation.
The bank also maintained its earlier forecast that consumer prices would continue falling until the start of the 2011 fiscal year in April, but raised its inflation expectations for that year to reflect rising commodity prices.
'Japan's economy still shows signs of a moderate recovery, but the recovery seems to be pausing,' the central bank said in a statement, keeping its broad assessment unchanged.
The policy board voted unanimously at the end of a two-day meeting to leave its key rate in a 0.0-0.1% range.
Japan remains mired in crippling deflation, as falling prices prompt consumers to hold off on purchases in the expectation of further price drops, clouding future corporate investment.
The Bank of Japan stuck to its view deflation will end in fiscal 2011 but said the core consumer price index, excluding volatile food items, would rise 0.3%, instead of the previously forecast 0.1%, due to higher commodity prices.
And it maintained its earlier projection for prices to increase 0.6% in 2012 as the economy gradually overcomes deflationary pressures that have dragged down growth.
The bank also raised its growth assessment for this fiscal year to 3.3%, from an earlier forecast of 2.1% despite its own assessment that exports were 'somewhat weak'.
Government stimulus measures have helped boost domestic production and consumption in the current fiscal year, including subsidy programmes for purchases of environmentally friendly vehicles and appliances.
The government last week raised its economic assessment for the first time in seven months, citing signs of exports being supported by firm demand in Asia.
While economists expect a slight contraction in the final quarter of 2010, the reviving regional demand picture is expected to keep Japan's growth ticking along at a modest pace next year.
However, analysts warn that the bank may yet be forced to ease policy further this year, such as by expanding its asset-purchasing programme.
